How Medicare is funded?

You probably know that Medicare pays for medical expenses, but you may not know how the program continues to receive funds. If you’re on Medicare, you may wonder about Medicare funding. Where does the U.S. government get the money to offer health care for people ages 65 and older?

What Is Medicare?

The U.S. government created Medicare to offer health care insurance for retired Americans. Until the Affordable Care Act went into effect, many citizens could only receive health insurance through their employers. After they retired, citizens needed a way to continue paying for doctors’ visits, trips to the emergency room, prescription medications, and other health care costs. Medicare fills that need for those who need it.

If you’re new to Medicare, you may want to familiarize yourself with the program’s terminology. The official Medicare website, medicare.gov, says some people can automatically enroll in Medicare Parts A and B when they turn 65. Medicare Parts A and B provides coverage for hospital stays and outpatient services, respectively.

Even though the new health care law exists, Medicare still plays an important role in helping retirees and Americans over age 65 afford health care.

How Is Medicare Funded?

According to the Henry J. Kaiser Family Foundation (KFF), spending on Medicare accounted for 15 percent of the federal budget in 2015. The KFF further reveals that Medicare funding comes from three primary sources:

  • General revenue: This part of Medicare funding comes primarily from federal income taxes that Americans pay.
  • Payroll taxes: Employers who pay payroll taxes also contribute to Medicare’s solvency.
  • Beneficiary premiums: When Medicare covers your health care needs, you pay a monthly or annual premium to the U.S. government, similar to what you would to a privatehealthcaree insurance company. These premiums help cover health care costs for Americans.

When you’re employed, your employer withholds a certain amount of money from your paycheck, including Medicare and Social Security withholding. The Medicare withholding contributes to the Medicare fund, which helps pay for your health care costs when you start taking advantage of the program.

According to CNN Money, employees pay 1.45 percent of their earnings toward the Federal Insurance Contributions Act (FICA), which includes Medicare funding. Employers pay another 1.45 percent on payroll taxes. Self-employed professionals pay the full amount for both employees and employers, which means that they devote 2.9 percent of their earnings toward FICA.

Money for Medicare disbursements goes into the Medicare trust fund, which the federal government manages. People who receive Medicare benefits, or beneficiaries, don’t have to pay their total health care costs because the trust pays providers on their behalf.

Will Medicare Funding Run Out?

Many people worry that Medicare funding will run out. However, in its current status, Medicare will be able to fund Part A health care expenses for beneficiaries through 2028. Additionally, the program can adjust for inflation and increase deductions to fund the program well into the 2030 decade.

As Americans live longer and as the aging population increases, Medicare may need to find alternative funding sources. In addition to increasing taxes on payroll and employee salaries, legislators may need to find other ways to raise money for older Americans’ health care costs.

How Can You Protect Your Financial Future?

Whether you’re enrolling in a Medicare program now or planning to in the future, you can take advantage of supplemental health insurance to make sure that your health care costs remain covered. Americans have plenty of options to protect themselves against health care crises.

Medigap insurance, for example, can often help with medical bills. Depending on the Medigap plan you choose, Medigap can cover expenses that Medicare does not cover by itself. A Medigap plan can reduce the amount of money you pay out of pocket for health care expenses so that you don’t have to worry about using your retirement savings to pay for expenses.

Medicare funding can seem confusing, but understanding its funding can help you make informed choices about your health care. Subscribe to our mailing list to discover more ways you can help to control your healthcare costs.

Compare up to 27 highly-rated Medicare insurance carriers :